The increasing size of projects to 10MW and above from 5MW earlier also leads to the economies of scale in component procurement and better absorption of fixed costs, it said adding that the return expectation of developers is likely to moderate as the market matures, leading to a reduction in overall tariffs.
Solar power is likely to become cheaper than or equivalent to conventional thermal energy prices over the next two to three years and reach Rs 4-4.5 per unit by 2017-18, India Ratings and Research said.
"This (fall in tariff) will be driven by a decline in capital costs (solar modules and other balance of plant), an increase in efficiency, a shift towards large solar photovoltaic projects leading to the economies of scale and lower return expectations by developers," India Ratings and Reserach said in a press release.
According to International Renewable Energy Agency, solar photovoltaic prices have fallen nearly 80% since 2008.
Additionally, solar module efficiency has witnessed an annual increase of 3.5-4.5%, it added.
The increasing size of projects to 10MW and above from 5MW earlier also leads to the economies of scale in component procurement and better absorption of fixed costs, it said adding that the return expectation of developers is likely to moderate as the market matures, leading to a reduction in overall tariffs.
The recent solar bids conducted by MP Power Management Company Ltd with per unit prices reaching as low as Rs 5.05 per unit are suggestive of the above trends, it said.
Globally in a recent bid, NV Energy, a Nevada utility, agreed to purchase 100MW solar power under a fixed-price 20-year power purchase agreement at 3.87 cents per unit (Rs 2.43/kWh).
Ind-Ra expects a strong pick-up in solar power installations over the next four-five years, driven both by the government impetus of 100GW of solar power by FY22 (60GW through grid connected solar projects) and a decline in solar power generation costs.
These factors will increase the affordability of solar power for distribution companies and eliminate the requirement of government support by way of subsidies or viability gap funding (VGF).
Ind-Ra sees a limited possibility of support by way of VGF, greater focus on infrastructure creation for the evacuation of solar power and higher possibility of distribution companies meeting their renewable purchase obligation.
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